Telecommunications Role in the Economic Development and Sector Encouraging Policy Options

5.1 Modeling the Linkages Between the Economic Development and the Telecommunications Infrastructure in Transition Countries

In this section, the author investigates empirically the relationship between economic development and telecommunications in transition countries. After an introduction in the main hypotheses, explaining the role of telecommunications in economic development, main directions in economic growth theory as well as recent empirical studies on the link between economic growth and telecommunications (including studies dealing with infrastructure and ICTs) are reviewed. The data correlations and analysis of the main statistics are followed in Sect. 5.1.2. In Sect. 5.1.3, the model, investigating the causal relationship between economic development and telecommunications in transition economies, is built. Finally, the results of estimations are presented and the main conclusions are drawn.

It is widely accepted that telecommunications as a part of infrastructure as well as a component of information communications technologies (ICTs) are essential to countries’ economic development. Obviously, investing in telecommunications infrastructure does itself stimulate economic growth because its products (like cable, switches) lead to increases in the demand for the goods and services used in their production. However, the economic returns on telecommunications infrastructure investment are much greater than the returns on just the telecommunications investment itself, because telecommunications are connected to other sectors of the economy through back-up and forward-linkages, having spillover effects on these sectors and creating externalities (Röller and Waverman 1996, p. 364; Welfens and Graack 1997, p. 208).